President-elect Donald Trump sees fit to micromanage the economy with serial interventions even before entering office and to retain domestic and foreign holdings as he makes public policy decisions. Past senior Obama administration officials are quick to point out that Trump is setting new and troubling precedents both in his interventions and his ethical conflicts.
Let’s take the interventions first. Obama officials will tell you that the financial meltdown of 2008 created a sort of existential crisis for the economy that justified some extraordinary measures. Those in the outgoing George W. Bush administration thought so, too. That is why both administrations supported the Troubled Asset Relief Program (TARP) and the auto bailout. However, these were sector-wide actions affecting millions of people. Moreover, the actions were subject to tight constraints Trump certainly hasn’t signed onto. Steven Rattner, who has responsibility for the car-industry bailout, recalled:
All of us – especially Tim Geithner and Larry Summers – hated the idea of the U.S. Government owning equity in these companies, let alone a majority interest in GM. But we ultimately concluded that it is better to get something for something than to get nothing for something. To mitigate the obvious risks, the Administration developed a set of principles for the “USG as shareholder” that would add strict limits on government involvement post-restructuring to the existing edict that we not ever meddle in day-to-day management decisions.
Among the ideas that was explicitly rejected was putting any government employees or official representatives on these boards. This underscored the need to put in place capable independent boards of directors and strong chairmen. Once again, there was no political interference. Working with Secretary Geithner and Director Summers, we looked particularly for strong former CEO’s of significant companies and also wanted to have at least one leading private equity person on each board. I don’t believe I have seen even one criticism of the resulting choices.
Contrary to popular belief, Rattner wasn’t sitting in his office deciding which auto plants to close, which dealerships would go under or which car models to develop. By contrast, Trump is micromanaging the economy to an extent heretofore unimaginable.
When a much broader initiative was undertaken by the Obama administration conservatives screamed that it was industrial policy and would have devastating consequences. Now they are silent when Trump does something much worse, picking out individual companies and telling them how to run their operations.
On the issue of government ethics, no president has attempted to retain ownership of active, highly visible businesses, let alone have them managed through relatives, as he makes daily decisions that affect the value of his holdings.
For the ordinary federal employee, the issue is straightforward:
A criminal conflict of interest statute, 18 U.S.C. § 208, prohibits an employee from participating personally and substantially, in an official capacity, in any “particular matter” that would have a direct and predictable effect on the employee’s own financial interests or on the financial interests of: the employee’s spouse or minor child; a general partner of a partnership in which the employee is a limited or general partner; an organization in which the employee serves as an officer, director, trustee, general partner, or employee; or a person with whom the employee is negotiating for or has an arrangement concerning prospective employment.”
That is why even employees with complicated holdings, business interests and foreign investments generally must eliminate the potential for conflicts before entering government or recuse themselves from matters even when there is the appearance of a conflict:
An executive branch-wide regulation recognizes that a reasonable person may believe that an employee’s impartiality can be influenced by interests other than the employee’s own or those that are imputed to the employee by the conflict of interest laws. Under 5 C.F.R. § 2635.502, employees are required to consider whether their impartiality would be questioned whenever their involvement in a “particular matter involving specific parties” might affect certain personal or business relationships.
This is also why all sorts of wealthy people, sometimes with great difficulty that delays their entry into government, have had to divest themselves of their holdings. George W. Bush’s treasury secretary Henry Paulson Jr. had “quite a fortune–a roughly $700 million equity stake in Wall Street’s premier investment banking house.” He had to divest himself of that, although he and other Cabinet officials have been able make use of a tax provision that allows them to defer (not avoid) capital-gains taxes “on assets they have to sell to avoid a conflict of interest, as long as the proceeds are reinvested in government securities or a broad array of mutual funds approved by the government within 60 days.”
If employees want to use a blind trust, exacting rules apply. (“An employee may place most types of assets into a blind trust portfolio. These initial assets continue to pose a conflict of interest until they have been sold or reduced to a value of less than $1,000. Any new assets purchased by the independent trustee may not be disclosed to the employee and therefore will not present a conflict of interest. . . . An employee can place only readily marketable securities in the trust portfolio and the portfolio must meet certain diversification standards. The initial assets of a diversified trust are not considered to pose a conflict of interest because the portfolio is so diversified that an official action taken by the employee would not have a direct and predictable effect on the value of the portfolio.”)
Trump initially claimed none of the conflict-of-interest rules applied to him. He is technically right with regard to domestic holdings. However, now Trump seems to have recognized it is just “not appropriate” to be holding stocks when he is making decisions that would affect them. He is precisely right. He claims to have sold his stock — although there is no documentation to that effect, and he refuses to release his tax returns. But wait. There is absolutely no difference between his stock portfolio and his active businesses; in fact, the conflict is much worse and more obvious when we are talking about an international family business. When a president runs on a platform of “draining the swamp,” he cannot very well do less than that required for every person who works for him.
Finally, there is the emoluments clause problem which, if he were president today, he’d be violating each and every day. As ethics gurus Norman L. Eisen and Richard W. Painter wrote:
We are in danger of having a president who could violate it if he does not disentangle his business operations from foreign governments. The potential violations also include the benefits conferred on Trump in connection with outstanding loans from the Bank of China, which is controlled by the Chinese government, as well as any investment or involvement of sovereign wealth funds in his many projects around the globe, and foreign governments putting up their officials or diplomats at Trump hotels or even those governments buying apartments in his buildings—at times likely vying for the most expensive suites. All of this will become unconstitutional come January 20.
So what will Trump do? More important, we are anxious to find out what congressional Republicans and the electors set to meet Dec. 19 decide to do.